Artisan Partners Asset Management Inc. Reports 1Q13 Results
Artisan Partners Asset Management Inc. Reports 1Q13 Results
MILWAUKEE--(BUSINESS WIRE)-- Artisan Partners Asset Management Inc. (NYS: APAM) (the "Company" or "Artisan Partners") today reported its results for the quarter ended March 31, 2013, including net income and earnings per share for the period from March 12, 2013 (the closing date of its initial public offering) through March 31, 2013.
Eric Colson, President and CEO, commented, "We have focused on providing high value-added investment management to sophisticated clients since Artisan Partners was founded in 1994. We believe that offering active investment management requires a commitment to attracting and retaining experienced investment talent. As a result, we design and manage our business model to create an investment culture in which our talent can thrive. The firm's IPO was one of several strategies we have executed over the years to allow us to manage our business according to those foundational principles over multiple generations. As a public company, our communications with shareholders will reflect this deliberate, long-term focus."
Business Update
Mr. Colson added, "We want to see our investment teams consistently executing their unique investment processes while generating attractive absolute, peer relative and index relative results over a full market cycle. Performance data for short time periods often reflect noise and market preference. Given the active, differentiated nature of our investment strategies, we think data for long periods tend to be a better indication of the value our teams deliver. As of March 31, 2013, 11 of our 12 investment strategies had added value relative to their broad performance benchmarks over the trailing 5-year and 10-year periods and since each strategy's inception.
"As we grow our business, we seek to partner with clients that have time horizons matching those of our investment teams, while managing an appropriate level of diversification of the assets invested in each strategy by client type and client domicile. If we are achieving our full cycle performance objectives, we believe that asset compounding will occur over the long term. However, as an active, equity manager our assets under management will be subject to volatility. At the end of the first quarter, our assets under management exceeded $80 billion due to a strong combination of organic growth and market appreciation. Importantly, we had positive net client cash flows in 10 of our 12 strategies and 4 of 5 distribution channels, generated by clients domiciled in the U.S. and abroad.
"Our first quarter adjusted results reflect positive progress against our primary metrics. Although we are reporting several items that are specifically related to our transition from private to public ownership, the core view of our business results are consistent with our goals. We believe our balance sheet is conservatively positioned, cash flows are solid and supportive of an attractive dividend, our fee levels reflect high value-added investment offerings, we are seeing positive improvements in margins as our business scales and our organic growth rates are above average relative to our peers.
"The strategy we employ for finding new investment talent and developing internal talent emphasizes increasing degrees of investment freedom and personal development. We do not have any specific news to report about new investment talent. But we continue to search for new investors with characteristics that fit our business model and culture and a history of managing assets in strategies that are viable options for our client base. Internally, we promoted Charles Hamker and Andrew Euretig to portfolio managers of our Global Equity strategy. The promotions reflect the value creation of both individuals and create great long-term continuity in decision making on that team."
First Quarter 2013 Highlights
Assets under management ("AUM") of $83.2 billion at March 31, 2013
Net client cash inflows of $2.2 billion
Operating loss of $421.3 million and operating margin of (284.3)%
Net income of $3.0 million or $0.19 per basic and diluted share1
Adjusted2 operating income of $54.9 million and adjusted operating margin of 37.0%
Adjustednet income of $33.2 million or $0.47 per adjusted share
The table below presents AUM and a comparison of certain GAAP and non-GAAP ("adjusted") financial measures.
For the Three Months Ended | |||||||||||||||
March 31, | December 31, | March 31, | |||||||||||||
2013 | 2012 | 2012 | |||||||||||||
(unaudited, in millions except per share amounts or as otherwise noted) | |||||||||||||||
Assets Under Management (amounts in billions) | |||||||||||||||
Ending | $ | 83.2 | $ | 74.3 | $ | 66.5 | |||||||||
Average | 79.2 | 71.3 | 62.9 | ||||||||||||
Consolidated Financial Results | |||||||||||||||
Revenues | $ | 148.2 | $ | 137.1 | $ | 119.7 | |||||||||
Operating income (loss) | (421.3 | ) | 39.4 | 4.5 | |||||||||||
Operating margin | (284.3 | )% | 28.7 | % | 3.8 | % | |||||||||
Net income attributable to Artisan Partners Asset Management Inc.3 | 3.0 | — | — | ||||||||||||
Basic and diluted earnings per share1 | 0.19 | N/A | N/A | ||||||||||||
Adjusted2Financial Results | |||||||||||||||
Adjusted operating income | $ | 54.9 | $ | 55.4 | $ | 47.4 | |||||||||
Adjusted operating margin | 37.0 | % | 40.4 | % | 39.6 | % | |||||||||
Adjusted EBITDA4 | $ | 55.6 | $ | 57.0 | $ | 47.6 | |||||||||
Adjusted net income | 33.2 | 34.0 | 28.5 | ||||||||||||
Adjusted earnings per adjusted share1 | 0.47 | N/A | N/A | ||||||||||||
______________________________________
1 Per share measures are based on the number of shares of Class A common stock and convertible preferred stock outstanding for the period from March 12, 2013 (the closing date of the initial public offering) through March 31, 2013.
2 Adjusted measures are non-GAAP measures and are explained and reconciled to the comparable GAAP measures in Exhibit 2.
3 The Company become the general partner of Artisan Partners Holdings on March 12, 2013. Prior to that time none of the net income of Artisan Partners Holdings was allocated to the Company.
4 EBITDA represents earnings before interest, tax, depreciation and amortization expense.
Assets Under Management Increased to $83.2 billion
Our AUM increased to $83.2 billion at March 31, 2013, an increase of $8.8 billion or 11.9%, compared to $74.3 billion at December 31, 2012 as a result of $6.7 billion in market appreciation and $2.2 billion of net client cash inflows. Compared to March 31, 2012, AUM increased $16.7 billion, or 25.1%, due to $10.1 billion in market appreciation and $6.6 billion of net client cash inflows.
Average AUM during the quarter ended March 31, 2013 was $79.2 billion, an increase of 11.1% compared to average AUM during the quarter ended December 31, 2012 of $71.3 billion and a 25.8% increase from the quarter ended March 31, 2012 of $62.9 billion.
First Quarter of 2013 Compared to Fourth Quarter of 2012
Net income was $3.0 million, or $0.19 per diluted share. Adjusted net income was $33.2 million, or $0.47 per adjusted share, compared to adjusted net income of $34.0 million in the fourth quarter of 2012. The current quarter includes severance and cash retention expenses of $9.3 million which reduced adjusted net income by $4.1 million or $0.06 per adjusted share when compared to the fourth quarter of 2012.
Revenues of $148.2 million increased 8.1% from $137.1 million in the fourth quarter of 2012 primarily due to higher average AUM as a result of market appreciation and net client cash inflows.
Operating expenses of $569.5 million increased 482.9% from $97.7 million in the fourth quarter of 2012 driven primarily by share-based and other pre-offering related compensation expense. Included in compensation and benefits expense for the first quarter of 2013 was $9.3 million of severance and cash retention expenses.
Operating margin was (284.3)% compared to 28.7% in the fourth quarter of 2012. The decline was primarily due to share-based and other pre-offering related compensation expense incurred in the first quarter of 2013.
Adjusted operating margin was 37.0% compared to 40.4% in the fourth quarter of 2012. Severance and cash retention expenses during the first quarter of 2013 reduced adjusted operating margin by 420 basis points when compared to the fourth quarter of 2012.
First Quarter of 2013 Compared to First Quarter of 2012
Net income was $3.0 million, or $0.19 per diluted share. Adjusted net income was $33.2 million, or $0.47 per adjusted share, compared to adjusted net income of $28.5 million in the first quarter of 2012. The current quarter includes severance and cash retention expenses of $9.3 million which reduced adjusted net income by $4.4 million or $0.06 per adjusted share when compared to the first quarter of 2012.
Revenues of $148.2 million increased 23.8% from $119.7 million in the first quarter of 2012 primarily due to higher average AUM as a result of market appreciation and net client cash inflows.
Operating expenses of $569.5 million increased 394.4% from $115.2 million in the first quarter of 2012 driven primarily by share-based and other pre-offering related compensation expense. Included in compensation and benefits expense for the first quarter of 2013 was $9.3 million of severance and cash retention expenses.
Operating margin was (284.3)% compared to 3.8% in the first quarter of 2012. The decline was primarily due to share-based and other pre-offering related compensation expense incurred in the first quarter of 2013.
Adjusted operating margin was 37.0%, compared to 39.6% in the first quarter of 2012. Severance and cash retention expenses during the first quarter of 2013 reduced adjusted operating margin by 420 basis points when compared to the first quarter 2012.
Capital Management
Cash and cash equivalents were $199.1 million at March 31, 2013, compared to $141.2 million at December 31, 2012. The Company had total borrowings of $200.0 million at March 31, 2013 and $290.0 million at December 31, 2012. The Company received net proceeds from its initial public offering of $353.4 million. In connection with the initial public offering, the Company used a portion of the proceeds to distribute $105.3 million of pre-IPO retained profits to its partners, repaid $90.0 million of the outstanding principal amount of loans under our revolving credit agreement, and purchased approximately 2.7 million Class A units from certain investors for approximately $76.3 million. Also, in connection with the initial public offering, the Company used cash on hand to make cash incentive payments aggregating $56.8 million to certain of its portfolio managers. The Company's debt leverage ratio, calculated in accordance with its loan agreements, was 0.9X at March 31, 2013.
As a result of our reorganization and offering, total stockholders' equity was $5.8 million at March 31, 2013, compared to a deficit of $36.7 million at December 31, 2012. The Company had 12.7 million shares of Class A common stock outstanding and 2.6 million shares of convertible preferred shares outstanding at March 31, 2013.
CONFERENCE CALL
The Company will host a conference call on April 30, 2013, at 5:00 p.m. (Eastern Time) to discuss these results. Hosting the call will be Eric Colson, Chief Executive Officer, and C.J. Daley, Chief Financial Officer. The call will be webcast and can be accessed via the investor relations section of artisanpartners.com. Listeners may also access the call by dialing 888.680.0890 or 617.213.4857 for international callers; the conference ID is 63381620. A replay of the call will be available until May 7, 2013, by dialing 888.286.8010 or 617.801.6888 for international callers; the replay conference ID is 45568553. In addition, the webcast will be available on the Company's website.
FORWARD-LOOKING STATEMENTS
Certain statements in this release, and other written or oral statements made by or on behalf of the Company, are "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's current expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are only predictions based on current expectations and projections about future events. These forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Among the important factors that could cause actual results, level of activity, performance or achievements to differ materially from those indicated by such forward-looking statements are: fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Artisan Partners brand and other factors disclosed in the Company's filings with the Securities and Exchange Commission, including those factors listed under the caption entitled "Risk Factors" in the Company's registration statement on Form S-1 (File No. 333-184686). The Company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.
ABOUT ARTISAN PARTNERS
Artisan Partners is an independent investment management firm focused on providing high value-added, active investment strategies to sophisticated clients globally. Since 1994, the firm has been committed to attracting experienced, disciplined investment professionals to manage client assets. Artisan Partners has five autonomous investment teams that oversee twelve distinct U.S., non-U.S. and global investment strategies. Each strategy is offered through multiple investment vehicles to accommodate a broad range of client mandates.
The firm's principal offices are located in Milwaukee, San Francisco, Atlanta, New York and London.
Exhibit 1 | ||||||||||||
Artisan Partners Asset Management Inc. | ||||||||||||
Consolidated Statements of Operations | ||||||||||||
(unaudited; in millions, except per share amounts or as noted) | ||||||||||||
For the Three Months Ended | ||||||||||||
March 31, | December 31, | March 31, | ||||||||||
2013 | 2012 | 2012 | ||||||||||
Revenues | ||||||||||||
Management fees | ||||||||||||
Artisan Funds & Artisan Global Funds | $ | 99.5 | $ | 90.5 | $ | 79.5 | ||||||
Separate accounts | 48.7 | 45.3 | 39.9 | |||||||||
Performance fees | — | 1.3 | 0.3 | |||||||||
Total revenues | 148.2 | 137.1 | 119.7 | |||||||||
Operating expenses | ||||||||||||
Compensation and benefits | 72.7 | 61.6 | 55.7 | |||||||||
Pre-offering related compensation - share-based awards | 333.2 | 15.8 | 34.8 | |||||||||
Pre-offering related compensation - other | 143.0 | 0.2 | 8.1 | |||||||||
Total Compensation and benefits | 548.9 | 77.6 | 98.6 | |||||||||
Distribution and marketing | 8.2 | 7.6 | 7.1 | |||||||||
Occupancy | 2.6 | 2.4 | 2.3 | |||||||||
Communication and technology | 3.3 | 3.4 | 2.9 | |||||||||
General and administrative | 6.5 | 6.7 | 4.3 | |||||||||
Total operating expenses | 569.5 | 97.7 | 115.2 | |||||||||
Operating income (loss) | (421.3 | ) | 39.4 | 4.5 | ||||||||
Interest expense | (3.2 | ) | (3.3 | ) | (2.7 | ) | ||||||
Net gain on the valuation of contingent value rights | 24.8 | — | — | |||||||||
Net gain of consolidated investment products | 4.8 | 0.3 | 2.5 | |||||||||
Other non-operating income (loss) | — | 0.8 | (0.3 | ) | ||||||||
Total non-operating income (loss) | 26.4 | (2.2 | ) | (0.5 | ) | |||||||
Income (loss) before income taxes | (394.9 | ) | 37.2 | 4.0 | ||||||||
Provision for income taxes | 4.4 | 0.2 | 0.3 | |||||||||
Net income (loss) before noncontrolling interests | (399.3 | ) | 37.0 | 3.7 | ||||||||
Less: Net income (loss) attributable to noncontrolling interests - Artisan Partners Holdings LP | (407.1 | ) | 36.7 | 1.2 | ||||||||
Less: Net income attributable to noncontrolling interests - consolidated investment products | 4.8 | 0.3 | 2.5 | |||||||||
Net income attributable to Artisan Partners Asset Management Inc. | $ | 3.0 | $ | — | $ | — | ||||||
Basic and diluted earnings per share - Class A common shares | $ | 0.19 | N/A | N/A | ||||||||
Average shares outstanding | ||||||||||||
Class A common shares | 12.7 | N/A | N/A | |||||||||
Convertible preferred shares | 2.6 | N/A | N/A | |||||||||
Total average shares outstanding | 15.3 | N/A | N/A | |||||||||
Exhibit 2 | ||||||||||||
Artisan Partners Asset Management Inc. | ||||||||||||
Reconciliation of GAAP to Non-GAAP ("Adjusted") Measures | ||||||||||||
(unaudited; in millions, except per share amounts or as noted) | ||||||||||||
For the Three Months Ended | ||||||||||||
March 31, | December 31, | March 31, | ||||||||||
2013 | 2012 | 2012 | ||||||||||
Net income attributable to Artisan Partners Asset Management Inc. (GAAP) | $ | 3.0 | $ | — | $ | — | ||||||
Add back: Net income (loss) attributable to noncontrolling interests - Artisan Partners Holdings LP | (407.1 | ) | 36.7 | 1.2 | ||||||||
Add back: Provision for income taxes | 4.4 | 0.2 | 0.3 | |||||||||
Add back: Pre-offering related compensation - share-based awards | 333.2 | 15.8 | 34.8 | |||||||||
Add back: Pre-offering related compensation - other | 143.0 | 0.2 | 8.1 | |||||||||
Less: Net gain on the valuation of contingent value rights | 24.8 | — | — | |||||||||
Adjusted provision for income taxes | 18.5 | 18.9 | 15.9 | |||||||||
Adjusted net income (Non-GAAP) | $ | 33.2 | $ | 34.0 | $ | 28.5 | ||||||
Average shares outstanding | ||||||||||||
Class A common shares | 12.7 | — | — | |||||||||
Assumed conversion or exchange of: | ||||||||||||
Convertible preferred shares outstanding | 2.6 | — | — | |||||||||
Artisan Partners Holdings LP units outstanding (non-controlling interest) | 54.7 | — | — | |||||||||
Adjusted shares | 70.0 | N/A | N/A | |||||||||
Adjusted net income per adjusted share (Non-GAAP) | $ | 0.47 | N/A | N/A | ||||||||
Operating income (loss) (GAAP) | $ | (421.3 | ) | $ | 39.4 | $ | 4.5 | |||||
Add back: Pre-offering related compensation - share-based awards | 333.2 | 15.8 | 34.8 | |||||||||
Add back: Pre-offering related compensation - other | 143.0 | 0.2 | 8.1 | |||||||||
Adjusted operating income (Non-GAAP) | $ | 54.9 | $ | 55.4 | $ | 47.4 | ||||||
